Signal Gold Inc T.SGNL

Merger DD: Pre-Merger Financing Is Good For SGNL

[DoumDiDoum]

During my DD, I tried to make sense of the Transaction Terms. It is proposed that SGNL shareholders will get 0.1244 share of NEXG for every SGNL share. At current market caps for both companies (October 15):

• $57.15M market cap with 76.2M shares for NEXG
• $23M market cap with 255M shares for SGNL

It means that NEXG has 71.3% of the combined market cap combination ($80.15M) and SGNL has 28.7%.

The transaction terms also allow both companies to raise capital pre-merge, at the following conditions (I'm rounding a bit for simplification):

• SGNL can add 75M shares to their float with the option of adding 37M more for a total of 112M extra shares.
• NEXG can add 6.3M shares to their float with the option of adding 3.1M more for a total of 9.4M extra shares.

These conditions allow SGNL to increase their ownership of the merged company if they do well in their financing. Let's prove it with two scenarios:

Scenario 1 : Financing Offers Are Both Fully Subscribed

If concurrent financings are fully subscribed (6.3M shares for NEXG and 75M shares for SGNL), SGNL float would be 330M shares and NEXG float would be 82.5M shares pre-merge.  SGNL shareholders get 0.1244 NEXG shares, meaning that 41M (330M x 0.1244) shares would be added to the 82.5M NEXG shares for a total of 123.5M shares post-merging. SGNL shareholders will then have 33% of the merged company and NEXG 67%. 33% of the combined market caps at NEXG current market cap means that SGNL market cap should be at (If X is SGNL MC then X=0.33×(57.15+X)) $28.4M for a 11 cents share price. Thus, if someone thinks that both companies will fully subscribe their financing, buying the SGNL's NFT shares at 8.7 cents is quite a deal! Even buying at market price below 10.5 cents seems to be a fair deal.

Scenario 2 : Financing Offers Are Both Over-subscribed Using The Additional 50% Shares

It would mean 9.4M extra shares for NEXG for a total of 85.6M shares and 112M extra shares for SGNL for a total of 367M shares, adding 45.6M shares post-merging. Using the same calculations than above, SGNL shareholders will have 45.6M out of 131.3M shares for 34.7% of the company. Using current NEXG market cap, that would mean that SGNL market cap should be at (If X is SGNL MC then X=0.347×(57.15+X)) $30.4M for a 12 cents share price.

Using these two scenarios, it’s easy to understand that if someone must pick only one of the two financing to participate in, it’s better to participate in SGNL’s one. However, for existing SGNL shareholders, you must add 30% more shares to your current position if you do not want to be diluted and benefit from this leverage.

What do you think? Are my calculations make sense?

[shiftyone]

"Using these two scenarios, it’s easy to understand that if someone must pick only one of the two financing to participate in, it’s better to participate in SGNL’s one. However, for existing SGNL shareholders, you must add 30% more shares to your current position if you do not want to be diluted and benefit from this leverage." ------------ DoumDiDoum, you have neglected to take